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People in these states receive the highest tax refunds on average

LaylaBird

Many taxpayers get a refund from the IRS. Not all are created equal.

Some taxpayers receive significantly higher refunds after filing their returns, according to an analysis of IRS data done by LendingTree. In 2018, the latest available data, the average refund across the board was about $3,660, according to the study.

However, taxpayers in about 13 U.S. states saw average refunds higher than the national amount, while those in 37 states were cut smaller checks by the IRS.

Overall, it is difficult to pinpoint why some states have higher average tax refunds, as there are so many individual variables that go into calculating what the IRS owes to taxpayers, according to Erika Giovanetti, a writer at LendingTree.

Family size, income, living arrangements, field of work and more can impact how people pay their taxes, she said. Still, taxpayers that live in states with lower costs of living that also see some of the highest average refunds – such as Wyoming and Florida— will likely see that money go the farthest.

“Those taxpayers really enjoy the biggest benefits from tax season,” she said.

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Why you’re getting a refund

Taxes are due periodically as you earn income, and for most Americans, the levy is taken out of each paycheck and sent to the IRS by their employer. Those that are gig workers or have other income generally need to make quarterly estimated payments to the IRS.

In 2020, nearly 170 million people filed tax returns, and the IRS issued about 126 million refunds, accounting for about 74% of all filers.

This year through April 2, the IRS has received more than 93 million individual tax returns and sent out more than 62 million refunds – which means that so far, about 67% of taxpayers have gotten money back from the agency. The average refund size so far is $2,893.

The amount that the employer takes out of each paycheck for taxes – the withholding – is elected by the employee based on circumstances such as family size, if they’re head of household or are even someone else’s dependent.

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At the end of the year, when you file taxes, you’re essentially settling with the IRS – you tell them how much money you made during the year and determine if you’ve overpaid or underpaid your liability. If you underpaid, you’ll owe the IRS, and if you paid too much, you’ll get a refund.

It’s important that Americans understand that refunds are not free money or a bonus at the end of the year but something they’re owed – it’s their money that they overpaid coming back to them.

That also means that some people may elect to adjust their withholding so that more of their earnings go to them instead of the federal government. If you got a large refund and would rather not have as much taken out of your paycheck, now is the time to adjust your withholding.

Of course, some Americans might have larger than normal refunds this year. If you were eligible for any of the three economic impact payments and didn’t receive them or should’ve gotten more money, filing a tax return and claiming the Recovery Rebate Credit is the only way to recoup the funds. It will either offset what you owe or add to your total refund.

How long you have to claim a refund

The IRS extended the filing season for individuals to May 17, but if you’re owed money, that’s a hypothetical date, according to Adam Markowitz, an enrolled agent with Howard L Markowitz PA CPA in Leesburg, Florida.

If you’ve overpaid the IRS, there is no penalty for filing late, the agency won’t reduce your refund and you can still get the money owed to you as long as you file a tax return and claim it within three years of the original filing deadline.

“It’s not a physical, tangible hard stop or you don’t get your money back,” said Markowitz.

That means that taxpayers who are owed a refund will likely have until May 17, 2024 to claim the money owed them by the IRS. And, because the filing deadline was pushed back this year, people who have yet to claim a refund from 2017 but were owed one have until May 17 to send in their late tax return to the IRS.

To be sure, if you haven’t filed tax returns for 2018 and 2019, you may not receive your 2017 refund right away, according to the IRS. Still, there are other reasons to file – beyond claiming a refund, you may be able to take advantage of other credits such as the earned income tax credit.

The IRS is still holding onto some $1.3 billion in unclaimed refunds from 2017, the agency said in April. It estimates that half of the refunds owed are more than $865.

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Source: Investing - personal finance - cnbc.com

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